Thank you, Mr. Chairman, Ranking Member Lewis, and members of the Oversight Subcommittee for asking the National Association of Enrolled Agents (NAEA) to testify before you today. EAs are the only practitioners for whom the IRS directly attests competency and ethical behavior.

I am happy to report that for the most part, the 2006 filing season is progressing smoothly. Nonetheless, we need to bring a handful of issues to your attention.

As we heard only too starkly at the Finance Committee hearing on Tuesday, unenrolled tax return preparers continue to be a problem for taxpayers and the tax administration system. Mr. Chairman, I have previously brought this issue before your subcommittee and urge you to move expeditiously to pass legislation to require all paid tax return preparers to demonstrate competency and ethical standards through licensure and continuing education.

NAEA believes that such legislation will greatly aid all taxpayers—especially low income taxpayers—to comply with our nation’s tax laws by helping to ensure access to competent and ethical tax preparation services.

As usual, complexity rears its ugly head in the 2006 filing season. While the alternative minimum tax continues to stand out as the poster child for dazed taxpayers, two new issues have been particularly troublesome for practitioners this filing season.

The first is the new definition of dependent as defined in §152 of the Internal Revenue Code. While we applaud Congress for trying to simplify the definition of child, the law of unintended consequences has reared its head with respect to the new definition of qualifying child and qualifying relative. Quite frankly, the definitions have probably resulted in more, rather than less confusion. The examples we cite in our letter to Commissioner Everson need to be addressed.

I would also like to comment on the IRS expectation that the details of every capital transaction be reported on a Schedule D. The goal in submitting a tax return is to report the correct tax liability of the taxpayer. NAEA fails to understand why the listing of every transaction on a Schedule D is necessary to achieve that goal. The IRS espouses that it strives to lessen the burden on taxpayers. This requirement of reporting every detail is counterproductive to that claim and greatly increases the burden on taxpayers. Taxpayers who use professional assistance in preparing their tax returns are facing extra costs due to this requirement. Given the fact that many taxpayers now trade in the stock and bond markets, the goal should be to prepare an accurate tax return and not a meaningless exercise in reporting details.

Along a similar vein, our members cite a growing problem with information reporting on 1099 forms and cite example after example of brokerage firms sending two, three, and sometimes as many as four corrections of the Form 1099. We would like to caution Congress as it considers possible legislation to expand reporting requirements in this area to give the IRS and the industries involved plenty of lead time to develop and implement such an expansion. Otherwise, taxpayers will suffer and be required to file amended returns.

While not a specific filing season problem, NAEA is concerned that the Senate OIC proposal in the Reconciliation bill now in conference is unduly burdensome to taxpayers. While the steep entry cost would certainly deter frivolous offers, it will also certainly prevent most, if not all, earnest taxpayers from making their offers as well. We urge Congress to drop this provisions or alternatively to work with us to put forward an alternative such as the one outlined in our written testimony.

Finally, NAEA has been a strong proponent of beefing up enforcement at the IRS, while maintaining good customer service levels for taxpayers. There are full details in my written testimony but in the interest of time, I will only note that the IRS needs to consider building in some level of flexibility for its employees to be able to work with practitioners during filing season. The clear result will be higher quality audits and better responses to IRS inquiries.

In closing, Mr. Chairman and members of the subcommittee, NAEA and its members stand prepared to work with you and the IRS in ensuring a strong tax administration system and improving voluntary compliance. Thank you and I stand ready to answer any questions you may have.